The Ted Spread

Ted is the Chief Market Strategist and Vice President in charge of the Zaner Ag Hedge Group and specializes in agricultural hedging employing various strategies using futures, futures spreads, outright options and option combinations. He believes it is paramount to be able to use different strategies to adapt to market conditions. Ted works with large to mid size grain and livestock producers and end users in North, Central and South America.

Why We Should Just Throw Out this USDA Report

Jun 12, 2013

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.

There were lots of question marks coming into the June USDA WASDE report. With the release of this report it seems there are now more questions rather then answers. As it turns out, the June 28th stocks and acreage report is going to be the bigger deal this month and may even be the biggest report of the year.

Leading up to this June USDA report there was lots of talk about the USDA making changes to planted and harvested acreage numbers. This did not make much sense to me as the USDA does not make acreage adjustments on this report. Needless to say they did not change acreage numbers. And, this is where the problem with this report lies. Acreage is the biggest question mark of all at the moment. With late planting is has become fairly clear that there will be at least some corn acreage lost to preventive planting and possibly some soybean acreage as well. This will have a large impact on the balance sheet, but not this month.

So now we are left with trying to figure out how many acres will be lost. We can all speculate as to where the USDA will settle on the June 28th report, but for now that is all it is - speculation. And, the USDA has a tendency and/or history of putting out numbers that do not make much sense to those of us who think we know better. This certainly sets the stage for a huge report when the USDA does finally weigh in on the late planting situation.

The lack of revised acreage numbers was not the only thing lacking from this report. There was also very little change in the old crop balance sheets. It now seems obvious that the USDA did not want to make any major changes before the Quarterly Grain Stocks report. Also on June 28th, this will give us a much better insight to the supply of old crop grain as we go into the last leg of old crop and a firm gauge on demand in the last few months. This report will also be highly anticipated and has the potential to be a big market mover due to the tight old crop stocks situation.

All in all this report garnered a bearish reaction because the USDA did not lower acreage numbers and the carry over numbers were bigger then expected because of that. But in reality not much has changed since before the report was released. The USDA made very little change to last month's balance sheets. The acreage situation will still be a dominant feature of the market for bulls and bears to battle out. Bears can point to the lower feed demand and say this will be a trend and will offset slightly lower acreage numbers. Bulls will argue that the lower yield number will be a trend and will significantly tighten the balance sheet when the USDA does in fact lower acreage numbers. Which ever side of the fence you fall on this report leaves in its wake more questions then answers.

I am out of the office until Friday, which is why I am posting outside my normal times this week. I will be back to the normal routine next week. But please feel free to give me a call if you would like to talk about markets or your marketing plan. Have phone will travel... December Corn Daily chart:

November Soybeans Daily chart:

December Wheat Daily chart:

All this means that speculators should be looking for opportunities and producers need to look to lock up some prices while we have corn near $5.50 and soybeans near $13.00. Give me a call for some ideas. In particular, producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.

In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!

Futures, options and forex trading is speculative in nature and involves substantial risk of loss. This commentary should be conveyed as a solicitation for entry into derivitives transactions. All known news and events have already been factored into the price of the underlying commodities discussed. The limited risk characteristic of options refers to long options only; and refers to the amount of the loss, which is defined as premium paid on the option(s) plus commissions.

FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE-MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STRIKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT, OPTION PRICES MAY ONLY MOVE A FRACTION OF THE PRICE MOVE IN THE UNDERLYING FUTURES. IN SOME CASES, THE OPTION MAY NOT MOVE AT ALL OR EVEN MOVE IN THE OPPOSITE DIRECTION.